Thursday, November 5, 2009
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Court Increases Fee Awards in Social Security Disability Cases
By SHERRI M. OKAMOTO, Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday ordered increases in fees awarded to three local lawyers who successfully represented Social Security disability insurance claimants in federal court under contingent-fee contracts.
A majority of the highly fractured 11-member panel concluded that Magistrate Judges Arthur Nakazato and Robert N. Block of the Central District of California had abused their discretion in determining the amount of attorney fees due to Brian C. Shapiro, Young Cho and Denise Bourgeois Haley based on lodestar calculations rather than their lawful contingency-fee agreements with their clients.
Shapiro, Cho and Haley were all affiliated with the Santa Fe Springs-based Law Office of Lawrence D. Rohlfing, which specialized in Social Security matters. Each was retained by a Social Security disability insurance claimant who signed a contingent-fee agreement which provided that the attorney would be paid 25 percent of any past-due benefits awarded to the claimant.
Past-Due Benefits
All three claimants eventually recovered substantial past-due benefits, and their attorneys subsequently filed motions pursuant to 42 U.S.C. § 406(b) requesting fees of less than 25 percent of the past-due benefits secured for their clients.
Under Sec. 406(b), a district court entering judgment in favor of a Social Security disability insurance claimant who was represented by an attorney “may determine and allow as part of its judgment a reasonable fee for such representation, not in excess of 25 percent of the total of the past-due benefits to which the claimant is entitled by reason of such judgment.”
In each case, the Social Security Administration declined to assert a position on the reasonableness of the fees requested by the attorneys and none of the claimants objected to the requested fees.
Reduced Fees
Shapiro, who had obtained over $123,000 for his client, requested $21,000 in fees, representing 16.95 percent of the past-due benefits recovered. Nakazato awarded him $8,270.
Cho’s client received over $76,000 in past-due benefits and the attorney sought $11,500 in fees. But Nakazato found that $8,825 was a reasonable fee.
Haley asked for $24,000 in compensation for her work in securing over $172,000 for her client; Block determined that $12,650 was appropriate.
The attorneys each appealed the district courts’ fee orders and the cases were consolidated for argument on appeal.
Writing for the appellate court, Senior Judge Betty B. Fletcher explained that Sec. 406(b) does not define what a “reasonable fee” would be, only that it must not exceed 25 percent of the past-due benefits awarded, and therefore turned to Gisbrecht v. Barnhart, (2002) 535 U.S. 789 for guidance.
Gisbrecht rejected the lodestar approach to calculating attorney fee awards that the Ninth Circuit had employed up until that point, and directed district courts to respect the “the primacy of lawful attorney-client fee agreements.”
The Supreme Court clarified that a fee resulting from a contingent-fee agreement would be unreasonable, and subject to reduction, if the attorney provided substandard representation or engaged in dilatory conduct in order to increase the accrued amount of past-due benefits, or if the “benefits are large in comparison to the amount of time counsel spent on the case.”
Upon examining the fee awards for Shapiro, Cho and Haley, Fletcher said it was “starkly evident” that the district courts did not follow Gisbrecht.
Lodestar Fee
Fletcher noted that in each case, the district court determined a lodestar fee, compared it to the requested fee award and referred to the difference between the two as “an enhancement.” In each order, the district court expressed the “enhancement” as a percentage of the lodestar and found that each enhancement would be a “windfall” to the lawyers.
“By beginning with the lodestar calculation, the district courts plainly failed to respect the ‘primacy of lawful attorney-client fee agreements,’ ” Fletcher said, emphasizing that the district courts’ approach effectively reduced the attorney’s contractual fees by between 53.57 and 73.30 percent.
She reasoned that no reduction in fee was warranted since nothing in the district courts’ opinions suggests that counsels’ performance was deficient or dilatory and there was no evidence of fraud or overreaching in the making of the contingent-fee agreements.
As the attorneys “assumed significant risk in accepting these cases” which achieved positive outcomes for their clients, voluntarily evaluated the fees in comparison to the amount of time spent on each case and requested fees which were significantly lower than the fees bargained for in the contingent-fee agreements, Fletcher said the requested amounts were not excessively large in relation to the benefits achieved.
Fletcher added that a separate and adequate ground for vacating the attorney fee orders in these cases was the district courts’ failure to explain why the percentages by which the lodestar calculations were increased produced a reasonable fee by relating its “enhancement” of the lodestar to the circumstances of each individual case.
“Accordingly, we hold that petitioners are entitled to the fees which they requested and remand with instructions to award the requested fees,” Fletcher concluded, joined by Judges Mary M. Schroeder, Harry Pregerson, Stephen Reinhardt, Andrew J. Kleinfeld and Marsha S. Berzon.
Judge Richard R. Clifton, joined by Chief Judge Alex Kozinzki, partially concurred, agreeing that the district courts did not apply the proper standard in determining the amounts of fees awarded to the attorneys, but disagreeing with the conclusion that the attorneys should be awarded the amounts they requested.
Clifton argued that the cases should have been remanded so that the respective district courts could determine reasonable fees by the proper standard.
“That is a task assigned to the district courts, not to us, and it is the expertise of the district courts that the Supreme Court referenced in Gisbrecht v. Barnhart,” he contended.
Judge Carlos T. Bea, joined by Judges Johnnie B. Rawlinson and N. Randy Smith, also dissented, insisting that the magistrate judges had followed the process outlined in Gisbrecht.
“We think the majority faults the district courts for doing something—namely considering the amount of time the attorneys worked on each case—that the Supreme Court required them to do,” he wrote. “The actual amount of time spent on a case provides the trial judge with a reference amount to use in determining whether the attorney would receive a windfall.”
Bea also complained that the majority had not explained how the magistrate judges had erred in their findings that the requested fees would be a windfall for the attorneys or what properly defines the discretionary range in which the magistrates could find a windfall.
The jurist emphasized that the magistrate judges were the most familiar with the cases, pleadings, efforts invested by each attorney and all the other relevant factors in assessing whether the requested fee awards were reasonable, arguing that such familiarity should be decisive.
“If the magistrate judges found that the attorneys did not assume a significant risk in accepting representation, then awarding a significant fee based on the risk of litigation would indeed be a ‘windfall,’ ” he said.
The case is Crawford v. Astrue (Shapiro), 06-56284.
Copyright 2009, Metropolitan News Company